HOUSTON – Brookfield Property Partners has completed its acquisition of Houston Center, a downtown complex that includes four office towers and a 200,000-square-foot retail center.
The $875 million purchase of the 4.2 million-square-foot Houston Center ranks among the largest real estate transactions in Houston’s history.
Brookfield plans a significant renovation of the property, with investment expected to exceed $50 million to modernize a complex originally built in the 1970s and 1980s.
“The focus of our redevelopment efforts is going to be on enhancing the overall tenant experience,” said Travis Overall, Executive Vice President and Head of the Texas Region for Brookfield. “Specifically, we want to expand and improve the offering of amenities and redefine the public areas—lobbies, skybridges and plazas.”
HFF represented the seller, J.P. Morgan Asset Management, which first took a stake in Houston Center in 2004 alongside Crescent Real Estate, later acquiring full ownership.
Local office leasing experts say Houston Center needs upgrades to stay competitive with more modern buildings. Brookfield recently completed a $48.5 million renovation at its Allen Center complex in downtown Houston, which included removing a skybridge, installing lobby art and creating a park between Allen Center One and Two; additional phases are planned. The firm has also demonstrated large-scale urban redevelopment capability at Manhattan West in New York, where it invested $350 million to transform a concrete structure into the glass-clad 5 Manhattan West.
Travis Overall, who previously worked at Hines and took charge of Brookfield’s Texas operations earlier this year, said he is already soliciting proposals from design firms for Houston Center’s renovation.
The renovation is a strategic business move rather than cosmetic. Houston’s office market remains competitive and vacancy rates rose after the downturn in energy prices impacted local oil companies.
Houston Center’s current occupancy sits around 72 percent. Brookfield’s planned upgrades aim to attract tenants back, achieve higher rental rates and prevent the complex from slipping into Class B status, a concern some brokers have raised if improvements are not made.
Brookfield has retained Houston-based Transwestern as the leasing agent for Houston Center.
One notable challenge will be reshaping The Shops at Houston Center. The three-story, 196,000-square-foot retail component primarily serves office workers today, with restaurants and service-oriented stores. As downtown adds more multifamily housing, there’s potential to broaden the retail mix to attract residents as well as workers; currently the retail center is about 71 percent leased.
Redeveloping Houston Center gives Brookfield an opportunity to revitalize the eastern side of downtown, softening the pedestrian-unfriendly characteristics of skybridges, narrow sidewalks and fortress-like construction, and creating a more accessible, street-level environment.
“The office campus of the future is changing,” said Bob Eury, executive director of the Houston Downtown Management District. “Visionary leaders such as Brookfield understand the importance of variety and vibrancy in the workplace—creating a lively mixed-use environment is a must in today’s competitive office market, one that invites people to connect and have layered experiences.”
Brookfield’s redevelopment plans are expected to exceed what the previous owner, J.P. Morgan Asset Management, would have pursued.
The Houston Center portfolio includes:
LyondellBasell Tower – 46 stories; 1.1 million SF at 1221 McKinney St.
2 Houston Center – 40 stories; 1.0 million SF at 909 Fannin.
Fulbright Tower – 51 stories; 1.2 million SF at 1301 McKinney.
4 Houston Center – 16 stories; 674,000 SF on Lamar Street.
The Shops at Houston Center – 3 stories; 196,000 SF on McKinney Street.
The Houston Center project began in 1970 with a master plan developed by Texas Eastern, which assembled 33 contiguous blocks on the eastern portion of downtown. 2 Houston Center opened in 1974, followed by LyondellBasell Tower in 1978; the remaining buildings were completed in the early 1980s through a Texas Eastern and Cadillac Fairview partnership.
Houston Center has changed hands several times. Chicago-based JMB Realty purchased the complex in 1989 for $400 million; it later sold to Crescent Real Estate in 1997. During Crescent’s ownership, the Five Houston Center building was created and later spun off; it is now owned by Spear Street Capital. Crescent exited the property in 2011, leaving ownership to J.P. Morgan Asset Management.
With this acquisition, Brookfield becomes the largest owner of office properties in downtown Houston. Its downtown portfolio now totals approximately 12.3 million square feet and includes One, Two and Three Allen Center; 1600 Smith Street (formerly Continental Airlines headquarters); Heritage Plaza; Total Plaza; and Houston Center.